Social Security: Insurance program or "Ponzi scheme"?

Ask the millions of retirees who are not living in poverty right now.

The Social Security program is America’s most effective antidote to poverty. According to research by the Center on Budget and Poverty Priorities, about 22 million more adults and children would be living below the poverty line right now without social security. That’s a bigger economic lift than any other program in the United States.

Despite its success at doing exactly what it was designed to do, Social Security has had many haters over the past century, including recent attacks by Elon Musk, who has called the retirement insurance program a “Ponzi Scheme.”

Photo by Kenny Eliason on Unsplash

While the program started in 1935 to help bring the nation out of The Great Depression, its roots stretch back to the 1860s when Civil War Pensions saved the widows and children left behind by dead soldiers and also helped the men disabled in the war.

According to the Social Security Administration’s published history of itself, these Civil War Pensions were a significant part of the federal budget, making up 37% in 1894. While the program didn’t help families from the Confederate side, it did help decrease poverty among the elderly overall and set the scene for state pensions in many but not all states.

Thirty states offered old age pensions by 1935, but participation was low, because many did not want to be part of a so-called welfare program. The benefit was also low, 65 cents a day on average. As Americans left their family farms and moved to cities and industrial jobs, the old family safety net started to dissolve. Improved health care and sanitation also lengthened the American lifespan making the golden years longer, but still financially difficult.

The Great Depression accelerated these societal changes. And a couple of private pension programs that people could buy into – including some actual Ponzi schemes – got more people thinking about the government's role as a social safety net. After a wide-ranging debate about the form the government’s help should take, President Franklin D. Roosevelt pushed for the kind of retirement insurance already gaining traction in Europe. Distinct from welfare, which is based on need, workers would have their paychecks taxed to fund a future benefit.

While Social Security was designed more as a mandatory insurance program than a government entitlement, the system does smell a little of socialism, as it remains solvent because of group participation, sharing the expense of benefits like any other insurance program.

The program has grown and changed over the years, as outlined in this Social Security timeline. To complete the social safety net, after President Lyndon Johnson declared a “War on Poverty” during his 1964 State of the Union address, Congress added Medicaid and Medicare, to provide health insurance for the elderly, the disabled and people living in poverty.

Opinions on Social Security have varied since its inception

Historians described the program when it began as a fiscally conservative answer to a societal problem. The government could have made a different choice and created an entitlement paid for with general tax dollars. But they chose to tax workers to pay for their own retirement insurance.

But Social Security was not universally embraced at first, in part because it wasn’t a universal benefit. Women workers could not pay into the system and neither could farm workers or domestic workers. This was likely because lawmakers in the south wanted to prevent Black workers from gaining economic freedom to push for civil rights, according to a Foreign Policy analysis.

Republicans tried to kill the program repeatedly in its first decade, by freezing payroll taxes, calling it names like a “cruel hoax” and trying to eliminate the quarantine of Social Security dollars away from general fund dollars, to make the program less secure for the long-term. But those efforts failed to kill the program that was getting popular, until cutting or killing Social Security became known as the third rail of politics, a reference to the third rail on subway tracks that carries the current.

Important note: In 2025, about 69 million Americans will collect about $1.6 trillion in Social Security benefits. Whether they are liberal or conservative or somewhere in between, Baby Boomer and Generation X voters participate in elections in high numbers. Would they vote to reelect Congressmen who cut their retirement benefits? Elon Musk isn’t worried about this, because he was not elected to office. President Trump can’t run again. But the members of Congress are surely thinking about this.

That doesn’t mean cutting Social Security and Medicare isn’t on the Republican agenda this year, but it should give you an idea of how difficult winning that battle would be. A similar attempt to kill another popular program, the Affordable Care Act or Obamacare, failed repeatedly in part because of its popularity.

Why do conservatives hate Social Security so much?

First, it’s anti-capitalist. All social safety net programs are more like socialism than capitalism.

Second, rich people and fans of the rich don’t like anything that smacks of redistributing wealth and instead advocate for personal responsibility. They say people should work hard to pull themselves and their families out of poverty. And everyone who needs extra help is lazy and taking advantage of the rest of us.

Third, some people believe Social Security has increased the federal deficit. This is not true because current payroll taxes pay for current benefits. Demographics mess this up at times – now for example – because there are more retirees than workers to support them. But other demographic moments helped the system build up a surplus and Congress has made adjustments to rebalance the system, including changing benefit amounts by moving the full retirement age.

Fourth, some believe Social Security is nearing the end of its solvency and we should kill the program before it kills the federal budget. But as the saying goes: Why throw the baby out with the bath water? Social Security tax is only collected on earnings up to $176,100 in 2025. All income above this amount is not taxed for the retirement program. Nearly 200 million workers pay into the system, so even a small increase in the taxing limit would go a long way toward boosting the tax revenue and this tax increase would only touch the highest earners (but see above: Rich people don’t like Social Security).

Fourth, it encourages generational resentment. Some younger people do not like supporting the elderly, especially when they do not expect Social Security will still be around to support them when they retire.

Fifth, it’s easier to exploit the poor when they do not have the means to rise up and protest. Who can afford to fly or drive to Washington, D.C. and stand outside the White House and Congress when what they really need to do is work more and save for retirement.

Sixth, many believe the federal government has grown too large and needs to be trimmed back because it’s not working well. But Social Security is the antidote to that sentiment, as it has worked well to pull people out of poverty for nearly a century. The only way to win the war against big government is to win the battle to kill Social Security and its cousins, Medicare and Medicaid. But first, we need an argument for why big government is bad.

Believe me, I could go on and on with this list, and Current Affairs magazine did just that in an interview two years ago.

What the Trump administration is saying

In his speech to Congress on March 4, Donald Trump said Elon Musk’s Department of Government Efficiency had identified “shocking levels of incompetence and probable fraud in the Social Security program.” Trump and Musk have both claimed that government databases list millions of people aged well over 100 years old and he implied that all these people are still collecting Social Security payments.

The Social Security Administration’s Office of the Inspector General, said in a 2023 report however, that while there were nearly 19 million Social Security number-holders aged 100-plus, who haven’t been marked as deceased in the system, almost none of them are collecting Social Security payments. This information was confirmed in a press release on Feb. 19 from Lee Dudek, acting commissioner of Social Security.

And in case you’re still wondering if Social Security is a Ponzi Scheme, the definition of the Ponzi Scheme is investment fraud where you pay into the system and don’t get what you were promised. The only way to turn Social Security into a Ponzi Scheme is by destroying the agency that has been serving Americans and making retirement possible for almost 100 years.

Go deeper: Keep Reading

The Social Security Administration’s not-so-brief history of this social safety net:

https://www.ssa.gov/history/briefhistory3.html

The Center on Budget and Policy Priorities on the impact of Social Security:

https://www.cbpp.org/research/social-security/social-security-lifts-more-people-above-the-poverty-line-than-any-other

Current Affairs magazine interview about why the right hates Social Security:

https://www.currentaffairs.org/news/2023/02/why-the-right-hates-social-security-and-how-they-plan-to-destroy-it

Foreign Policy analysis: Is Social Security a “Ponzi scheme”?:

https://foreignpolicy.com/2025/03/10/social-security-musk-ponzi-scheme-benefits/

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